What does an advance in science or technology actually look like?
The notion of an advance in science and technology is at the heart of a compliant R&D tax credit claim, but it has a very narrow statutory meaning for tax purposes. Where a company has legitimate R&D, it is still vitally important to present the work correctly to HMRC, in order for the case workers to recognise the claim as compliant.
Here I take a worked example of a valid claim that was initially presented in a way that made it hard to agree that valid R&D had taken place. Then I show how we would go about remediating that.
Here’s a passage from a report from a different advisor, where we were providing advisory services on the compliance action from HMRC.
Writing can be very subjective, so I’d hesitate to characterise the writing example below as categorically “wrong”. Writing like this does have a use. But it’s definitely unhelpful in an R&D technical report, because, after reading it, I still didn’t know what had happened and couldn’t make a judgement on whether relief should be applied or not.
What they wrote:
The aim of this project is to achieve a technological advance in the software field by seeking to extend overall knowledge and capability in software development. Specifically, the competent professional sought to develop the underlying technology which would allow for the development of a system with integrated process and logic, capable of integrating specific computational finance functionalities for parcels of complex and distinct parameters.
What they meant:
In the ecommerce sector, the competent professional sought to advance the field of software engineering through an extension and functional improvement to the [REDACTED] shopping cart software. The advance would allow [REDACTED] to integrate European VAT rules (IOSS) on carts split across multiple shipments, where shipments could contain a mix of VAT and non-VAT SKUs. At the outset, [REDACTED] could only apply tax once across an entire cart.
To achieve their advance the competent professional would need to code new logic and services that could:
Intercept carts prior to dispatch
Triage carts by weight to create split shipments, which kept parcels below weight thresholds
Keep track of individual SKUs and apply relevant taxes to parcels
Then re-integrate the shipments as a single order entity for invoicing purposes
Per DSIT 6, the advance would increase the overall knowledge and capability in the ecommerce field as, at the outset, neither [REDACTED] nor hosted ecommerce platforms such as Magento and Shopify had a solution for integrating IOSS across split shipments.
Additionally and per DSIT 9c, the advance would also appreciably improve upon the baseline capability, where taxes could only be applied across the whole shopping cart.
Analysis
The original writer writes too generally and with longer words, rather than plain English. There is a sense of the words hiding information rather than revealing it.
The writer also uses circular logic and tautology (” … achieve a technological advance by seeking to extend overall knowledge and capability).
The writer makes reference to an “underlying technology” but does not say what that technology is.
The writer describes the technology as relating to a “system”, but does not say what components are in the system or what the system does.
They describe “integrated process and logic” – but this is a generic description of what all computing contains, so could be assumed as routine until specified otherwise.
The writer alludes to “specific computational finance functionalities” but does not, in fact, specify what these were – when you might think that would be quite important.
The writer alludes to “parcels of complex and distinct parameters” but at this stage it’s not clear that physical shipments are being referred to – they could be data packets. Also: they don’t say what the parameters are.
In summary
The original paragraph is a collection of generalisms that clouds rather than informs. Given the context is a claim for tax relief, when I read it, I assume the writer is trying to hide something from me. This is dangerous, because in this case the technology was in fact genuinely novel and definitely qualified for the relief.
Richard Lewis MISTC
Senior Technical Consultant
